Asia/Pacific News
Crude Plummets as Coronavirus Causes Huge Refinery Cuts
News on Monday that the world's biggest crude oil importer told its facilities to cut throughput this month by 12 percent validated fears that the coronavirus would heavily impact demand - and as a result, oil prices fell to their lowest point in over a year.
Sinopec Corp. will reduce throughout in February by about 600,000 barrels per day (bpd), the steepest cut in over a decade; independent refineries in China's Shandong province reduced output by up to 50 percent within the period of a week, according to analysts.
The reductions correspond with reports that the number of travellers at Wuhan airport, China's busiest inland hub, has fallen by about a third as the coronavirus teeters on the brink of being declared a global pandemic.
Meanwhile, sources told media that the Organization of the Petroleum Exporting Countries (OPEC) is considering a further 500,000 bpd reduction to its output in an effort to keep supply and demand balanced, and rumours are circulating that the cartel may even prolong its curbs until at least June of this year.
However, this apparently wasn't enough to calm nervous traders, who on Monday caused Brent to settle down $2.17 at $54.45 per barrel, and West Texas Intermediate to drop $1.45 to $50.12 - the lowest outcome since January of 2019.
Phil Flynn, senior market analyst at Price Futures Group Inc., noted, "We have not seen a demand destruction event of this scale that moves this quickly."
Michael Tran was even more outspoken in his assessment of the reaction to the coronavirus: the managing director, energy strategist at RBC Capital Markets said, "The oil market has been subject to many supply shocks over recent years, but an acute demand shock has not been felt since the 2008 financial crisis."
As to what to expect in the days and weeks ahead for crude, Rebecca Babin, senior energy trader at CIBC Private Wealth Management, pointed out that the supply and demand profile for the commodity "was already looking extremely fragile for the first half of 2020 before the virus hit," and therefore "crude will remain very reactionary to any headlines that indicate the virus will have a sustained impact on global demand."
